U.S. Trade Representative Robert Lighthizer is attending Round Six of the NAFTA talks in Canada while President Trump, Secretary of Commerce Wilbur Ross, and Secretary of Treasury Steven Mnuchin attend the Davos World Economic Forum and sit down for an interview with Maria Bartiromo. (Three Video Segments).
Tag Archives: Central Planning
The Yield Curve
Armstrong Economics Blog/Interest Rates
RE-Posted Jan 25, 2018 by Martin Armstrong
QUESTION: AT the Institutional WEC session in 2016, you forecast that rates would rise but that the long-end would produce a positive yield for the next two years at least. Are we coming to an end of that forecast?
ANSWER: The new Institutional service is being expanded currently. Our hedging model positions have been added to the commentary. However, the consensus out there is that while the Fed is expected to raise rates 3 more times this year and 2 to 3 times next year, our models are projecting we are moving back toward a negative yield curve.
The last key high came at 3.65% premium for the 10-year during the first quarter 2010. The Quarterly Bearish Reversal rested at 2.61% and the next one presented a huge gap down to 0.87%. That first Quarterly Bearish was elected by the 3rd quarter 2010. The spread went negative in the 4th quarter 2013.
We will be adding the yield curve to the Institutional Levels. Those who have bought the long-term assuming that the short-term rate hikes will be modest for some time making a yield of about 2.65% attractive, may discover that the yield curve just may swing into a negative position again rather uncontrollably rather than intentionally.
We will be addressing this in more depth on the Institutional Blog.
On both the Professional Report for Individuals and for the Institutional Reports, Socrates writes a separate report for each time level in addition to a consolidated overview.
SAMPLE: INSTITUTIONAL REPORT FOR THE MONTHLY DOW JONES
This is not the complete report. Timing has been omitted in this version.
THE SOCRATES INSTITUTIONAL MONTHLY COMMENTARY, DOW JONES INDUSTRIALS AS OF THE CLOSE OF Fri. Jan. 19, 2018: Using our Monthly Hedging Model based on the Reversal System exclusively, we are currently long since Fri. Jan. 1, 2016 when we reversed our hedge position in this market.
The last Reversal elected was a Monthly Bullish during April 2017. From a speculative perspective, basis the Reversal System, we are currently hypothetically long 14 positions at this particular moment on the Monthly level. Closing support lies at 2245613. Only a daily closing below this level will signal a pause in the Monthly trend. This market is in a Breakout mode but is easing up right now yet it is still trading up year over year about 23.6%.
This market has been making new highs which has been a series of successive advances. The last 3 highs have been progressively making higher highs implying we have a bullish run in motion for the past 25 months. The Channel Technical Resistance stands at 2515199 for the next session. A closing above that will signal a breakout to the upside once again.
Regarding the near-term level, the market has closed up 21.2% from the last cycle low established April 2017, which has been only a 8-month rally as of last year. Nonetheless, turning to the long-term perspective, the market has still closed on the Monthly level up 60.8% from the strategic low established August 2015, which has been a 28-month rally from last year.
Our models for this month’s open on the monthly level was 2563170 which we opened below coming in at 2480935. We needed an opening print above that number to signal this was still in a strong breakout position. We have exceeded that number so far during the trading this month and we are still above it on the latest closing basis suggesting the market is still rather strong. The projected extreme target breakout resistance for this month stands at 2650939.
Critical support still underlies this market at 2170962 and a break of that level on a monthly closing basis would warn of a decline ahead becomes possible. Nevertheless, the market is trading above last month’s high showing some strength. On a broader perspective, this market remains in an uptrend posture on all our indicators looking at the monthly level. We see here the trend has been moving up for the past 28 months. The last monthly level low was 1537033, which formed during August 2015, and only a break of that high will see the market move high still. The last high on the monthly level was 2487607, which was created during December 2017, and has now been exceeded in the recent rally.
Currently, we have not elected any Monthly Bearish Reversals from this new high. The immediate Monthly Bearish Reversal to watch lies at 2170962. A closing beneath this level will signal a temporary high is in place. Additionally, a closing beneath 2392190 would also imply a pause, technically speaking, in the uptrend for now. Technical projected resistance for tomorrow stands at 2543813. Only exceeding that level would imply a runaway breakout to the upside.
Looking at our Pivot Points, the market is trading above one indicating pivot implying that this market is in a positive position with support at 2442269 and resistance at 2563170 and 2593155 this month.
ENERGY MODELS
Our Monthly Energy Models are still in a bullish mode given the fact that the market closed higher.
RISK
Turning to the monthly time level, we must respect that there is a 7.55% risk on the upside, where we show a clear downside risk factor at 16%. From a risk perspective, resistance on a closing basis stands at 2804252 whereas the risk on the downside begins at 2170962.
REVERSALS
The current overall tone on the Monthly level is very Bullish for right now electing four Monthly Bullish Reversals suggesting a strong trend move on this time level with the last Reversal being elected on April 2017.
The first key Monthly Bearish Reversal rests at 1601365. A bull market remains in play as long as that Reversal holds on a monthly closing basis. To confirm a mid-term change in trend to the downside, all four Monthly Bearish Reversals in this market would need to be elected meaning a monthly close beneath 2170962 is required. Our projected Bullish Reversals in this market are above beginning at 3373849. The Dow Jones Industrials is obviously in a full-blown bull market on the weekly to yearly levels of our model. Overall, the posture is quite bullish right now on the long-term perspective. Long-Term trend changes only when we elect monthly sell signals.
President Trump Delivers Remarks To Group of Mayors…
Prior to President Trump delivering remarks to a group of mayors from around the country, Attorney General Jeff Sessions announced the possible subpoenas for officials amid Sanctuary Cities. In response, several Mayors boycotted the White House meeting.
The jurisdictions that received DOJ notification letters on Wednesday included: Chicago; Cook County, Ill; New York City; the state of California; Albany, N.Y.; Berkeley, Calif.; Bernalillo County, N.M.; Burlington, Vt.; the city and county of Denver, Colo.; Fremont, Calif.; Jackson, Miss.; King County, Wash.; Lawrence, Mass.; City of Los Angeles, Calif.; Louisville, Ky.; Monterey County, Calif.; Sacramento County, Calif.; the city and county of San Francisco; Sonoma County, Calif.; Watsonville, Calif.; West Palm Beach, Fla.; the state of Illinois and the state of Oregon.
All 23 of these jurisdictions were previously contacted by the Justice Department, which raised concerns about its laws, policies and practices.
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[Transcript] 3:37 P.M. EST – THE PRESIDENT: Well, thank you very much. What a group. Some great friends, great mayors. Please sit down.
We have really hardworking, brilliant people in this room. I know so much about being a mayor.
We have a very good friend of mine, Dane Maxwell. Where’s Dane? Dane. Stand up, Dane. We’ve been together a long time, Dane, a long time. And thank you very much for being here. It’s a great place — that Mississippi is special. We had a good time on November 8th in Mississippi, right?
And Betsy Price. Betsy? Thank you, Betsy. Thank you for being here, very much. Really, two fantastic friends of mine for a long time.
Toni Harp. Where’s Toni? Toni? Toni? Uh oh, can’t be a sanctuary city person, I know. (Laughter.) That’s not possible, is it?
Well, I want to just say — I mean, we’ll start by saying that, as you know, the Department of Justice, today, has announced a critical legal step to hold accountable sanctuary cities that violate federal law and free criminal aliens back into our communities.
We can’t have that. Can’t have it. It would be very easy to go the other way, but we can’t have it. We want a safe country, and it’s getting safer all the time.
Sanctuary cities are the best friend of gangs and cartels, like MS-13. You know that. The result in the death rate around sanctuary cities — in and around — for innocent Americans is unacceptable. Take a look at what happened in San Francisco and Kate Steinle, and countless others.
My administration is committed to protecting innocent Americans and the mayors who choose to boycott this event have put the needs of criminal illegal immigrants over law-abiding Americans. But let me tell you, the vast majority of people showed up. Okay? The vast majority. Because the vast majority believe in safety for your city. (Applause.)
I want to thank all of you for being here. I’m thrilled to welcome dozens of mayors from across the country to the White House. And I’ve worked with so many of you, some in the private sector. Who knew I was going to be here? (Laughter.)
But it happened. Right, Kellyanne? My star, Kellyanne. Stand up, Kellyanne. She’s more famous than I am. (Applause.) Good. Thanks, Kellyanne. Great.
You bring safety, prosperity, and hope to our citizens. My administration will always support local government and listen to leaders who know their communities best. And you know your community best.
We believe in local government. We believe in empowering each and every one of you. Together, we are achieving absolutely incredible results.
We have created nearly 2.4 million jobs since the election. Nobody thought that was going to be happening, right? (Applause.)
The unemployment rate is at, now, an 18-year low. African American unemployment — I’m very proud of this. Remember, I used to say, “What do you have to lose?” And people said, “I don’t know if that’s a nice thing to say.” I said, “Of course it is. For 100 years, the Democratic mayors have done a terrible — I mean, they’ve done some bad work.” I said, “What did you have to lose?” African American unemployment is at its lowest rate ever recorded. (Applause.) That’s not bad.
Unemployment for women is at its lowest rate in 17 years, and that’s going to be a very new standard very soon. (Applause.)
And Hispanic American unemployment, like African American unemployment, is at the lowest rate ever recorded. That’s a long time. (Applause.)
And here’s the good news: it’s getting better. It’s going to get better. We’ve cut more regulations than any administration in history, by far. And we’ve been really doing the cutting for about 10 months, even though we’ve been here now for 12. We started a little bit late. Although, the first day we did some pretty big cutting, I will say.
And as you know, just before Christmas, we passed massive tax cuts and reform so that more businesses will come back to your cities and towns, and working families will finally get the pay raises that they’ve been waiting for many, many years, in some cases. (Applause.)
Our tax plan also creates opportunities — and some of you are taking advantage of that — to encourage investment in distressed communities, create more jobs, and bring Main Street booming back to life.
More than two million American workers have already received tax cut bonuses from their employers all because of our incredible tax cut bill. And I must tell you, this has worked far greater — because nobody thought in terms of the companies coming out and paying $1,000; and $2,000; and $2,500 per employee. They have hundreds of thousands of employees in some cases.
And the ones that aren’t getting it are getting it because they’re going, “What about us?” Now they’re at a point, they’re saying, “What about us?” We know that feeling. So it’s really turned out — nobody thought that.
As much as we thought — and as much as we had a lot of brilliant minds around that tax bill, nobody really thought in terms of would a company step up. And it started — AT&T started it. And then a couple of others picked it up very quickly — Comcast and some others, they picked it up. And then it became an avalanche.
And Kellyanne, we never used to talk about that because it wasn’t really in the realm of thinking. And it’s turned out to be, really, an avalanche. And it’s been a beautiful thing to watch. People are walking away with $1,000 and $2,000, and much more.
We’re also working to rebuild our crumbling infrastructure by stimulating a $1 trillion investment, and that will actually, probably, end up being about $1.7 trillion. (Applause.)
Oh, you like that? I can tell we have mayors in the room. That’s good. That’s good. Only mayors could be that excited. Only the mayors and the workers — it’s about jobs, right — could be that excited.
No, and we’ll probably be putting that in a week or two, right after the State of the Union Address. We’ll be talking about it a little bit in the State of the Union; we’ll put that in.
One of the other things, I have to say — Apple — a $350 billion investment. And I spoke to Tim Cook. And you probably you heard me on the trail — I’ll say, “I will not consider this job complete and great, in terms of economics and the economy, unless Apple someday starts building some plants in our country.” And what happened is they said, $350 billion.
And when I first heard it — Tim Cook and I spoke. But when I first heard it, I said, “I guess they mean $350 million” — because that’s a big plant. You know, $350 million, you can build a lot of plant. But they said, “No, sir, $350 billion.” And much of that comes from overseas. They’re going to bring it back because of the tax bill because we made it possible for them to bring it back. (Applause.)
And they’re investing a lot of money over and above that. So it’s $350 billion and thousands and thousands of new jobs. They’re going to build an incredible campus. It’s going to be something special.
But we worked with Congress to cut down the approval and permitting process so that it takes no longer than 2 years, instead of, on average, 10 to 12 to 17 years to build a simple road. (Applause.)
A road in a certain location — I won’t mention the state, although I happen to like the state very much — it’s been under approval 17 years. They’ve been planning it for 17 years, and it was a straight — nothing — road. Now it’s got lots of curves because we have to miss the nests and everything else. And curves aren’t good on roads. You know, roads are, like, straight. And it was, 17 years ago, going to cost virtually nothing, and it ends up being hundreds of millions of dollars. And it was recently completed, and everyone goes, “You have to be kidding.”
So we’re going to bring that 10-year process — that’s an average. I think it’s actually much higher than that. We’re going to bring that down to, we say, less than two years, but I’d like to be able to average about one year.
And you’ll let them know. If we don’t want a highway, if we don’t want something built, you’re going to let them know quickly. But at least they won’t be waiting 17 — because a lot of times, you’ll wait 17 years and you’ll get rejected. That’s even worse. If you’re the builder, that’s not good. You devoted a good part of your life to doing something and get rejected. That’s really unfair.
So you may get rejected, but you’re going to get rejected quickly, okay? That’s not bad. (Laughter.)
But mostly, you’re going to get — you saw what we did with the pipelines — 48,000 jobs, immediately. As soon as I came to the office, we approved it — 48,000 jobs.
We’re partnering with the state and local governments, like yours, to find the most innovative ways to rebuild our roads, bridges, waterways, and airports. Very important words: on time and under budget. Have you heard those words before? (Applause.) You don’t hear them too much in government, right?
And a lot of that is the bidding process, and you’ll take care of your bidding processes. But the bidding process is a very big factor in that. Some of the way they bid in cities and states — and, I can tell you, in our military — I mean, the process — it’s not even bidding, really. You give somebody a contract to steal, and we don’t want to do that.
We’re supporting our local police beyond what we’ve ever done. (Applause.) Great. And fire departments. We’re also getting you a lot of our excess military equipment; you know all about that. Previous administrations — but in particular, “-on” — the previous administration, “-on” — they didn’t like to do that, and someday they’ll explain why. But we had a lot of excess military equipment; we’re sending it to your police as they need it. And it’s made a tremendous difference.
We believe every child deserves to live in a safe home, attend a great school, and look forward to an amazing and very, very safe future. (Applause.) So you’re getting a lot of equipment.
And together — just in summing up — we are restoring pride in the American worker and faith in the American Dream. People are dreaming again. It’s been a tremendous thing. They’re especially dreaming when they open up their 401(k)s, and they see that they’re up 44 percent, okay? (Applause.) And they feel very brilliant about their investment strategy.
I told you the story, but I’ve said it numerous times — I like to tell it — about people, they come to me all the time and they say, “Thank you so much. I’m up 42 percent. I’m up 48 percent. I’m up 37 percent. And my wife or my husband thinks I’m totally genius as an investor.” (Laughter.) I said, “Don’t worry about it, just keep it.”
And I will say this, if the wrong person came into this office, you wouldn’t only be even and you wouldn’t be up — I think it’s now 42.5 percent, and the markets up again, but 42.5 percent since election — you would be down 30 to 40 percent.
And that’s what was happening. You take a look at your GDP then and take a look at what’s happened now. We’ll have three quarters in a row over 3[percent]. We had 3.2, and a lot of people thought it would take two or three years to get there. And we’re going to be hitting 4 soon, and then we’re going to be hitting 5’s. And you’re going to see a big difference. (Applause.)
And each point, remember this — so you go up, people say, “Oh, what’s the big deal between 2.5 and 3.5?” Well, I’ll tell you. You were below 2 — you had the slowest recovery in history. Slowest recovery in history. And if you take a look at the average, I think it was 1.7 or 1.8 for eight years. The one point means $2.5 trillion. Think of that. One point — $2.5 trillion — and it means 10 million jobs. Other than that, it’s not a big deal, okay? (Laughter.)
But it’s — literally, it’s $2.5 trillion to the country. We’ve gained in market value, in the stock market, $8 trillion since Election Day. I mean, that’s something that’s pretty amazing — $8 trillion. And set every record in doing it. Most days, where we had new records — you know, our stock market, I think, since election, it was 82 or 84 times where we set a new record for the stock market.
And it’s going to continue, folks, because we have a long way to go. We have, actually, a lot of regulation-cutting to do. And we want regulation. You know better than anybody we need regulation. But you don’t need 17 different approvals from 17 different agencies on the same subject. And we’re doing that, and it’s really been beautiful to watch.
But we actually have a long way to go, believe it or not, because we’ve gotten great credit for regulations. I think the regulations may be almost as important as the tax cuts. And I have some businesses that have called me and they say, “We love the tax cuts. We’re going to spend a lot of money. But, sir, we think the regulation-cutting that you’ve done might even be more important.” And I’m sure you’re seeing that too, or you’re seeing something like that.
So I want to thank you all for joining us in this great national effort. Thank you for your leadership — you truly are great leaders and important leaders — friendship and partnership. And together, we will usher in a very bold, new era of peace and prosperity.
We’re doing great. I’m going Davos right now to get people to invest in the United States. I’m going to say, “Come into the United States, you have plenty of money.” But I don’t think I have to go, because they’re coming — they’re coming at a very fast clip.
So it’s going to be an interesting time. But they’re coming back to this country. You saw that we have Chrysler leaving Mexico — we like Mexico — and coming into Michigan. We like that? Nobody has seen in a long time. (Applause.)
And we other major car companies. You saw Toyota and so many others; they’re coming back into the United States, and they’re building big plants. And that — all it means to me is money for our people, lower taxes. And what it really means is jobs.
So, people have not seen this in decades. And I think, in the end, they will never have seen anything like what’s happening with our country.
So, again, I would like to thank you all. You’re very, very important to the future of this country. You’ve done a fantastic job. So many friends and so many great people. And I know you very well. And thank you very much. And you guys have been fantastic, and I appreciate it very much.
Thank you. Thank you all. Have a good time. (Applause.)
Wilbur Ross Shreds Globalists at Davos: “We don’t intend to abrogate leadership, but leadership is different from being a sucker and being a patsy”…
Commerce Secretary Wilbur Ross at the World Economic Forum in Davos (President Trump departs the U.S. tonight to attend). The attendance by Secretary Ross provides an opportunity to further enforce the position of the Trump administration regarding free, fair and reciprocal trade deals.
Believe me, the economic globalist attendees were/are entirely freaking out. There’s a panel discussion video at the bottom which will highlight the tenuous position of the multinational corporations, banks and the economic interests of the globalists. Prior to the panel Secretary Ross gave an interview to CNBC. WATCH:
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As mentioned Secretary Ross also outlined how the ‘America First’ economic policy and platform engages with the global community during a panel discussion at the World Economic Forum. Generally the attendees have been historic champions of multinational corporations and multinational financial interests, ie. fans of “economic globalization”.
Wilbur Ross conveys to the larger multinational interests an explanation of the high-level shift in U.S. trade policy, and reinforces the Trump Doctrine of economic nationalism.
Secretary Ross told the panel: “The Chinese for quite a little while have been superb at free-trade rhetoric and even more superb at highly protectionist behavior. Every time the U.S. does anything to deal with a problem, we are called protectionist.”
Ross brushed off some narrow-minded global criticism about the U.S. retreating from the world stage allowing China to increase its geopolitical footprint around trade leverage. After three decades of President Trump outlining his trade views, secretary Ross accurately said President Donald Trump has a forceful leadership style that some people don’t like.
… “We don’t intend to abrogate leadership, but leadership is different from being a sucker and being a patsy. We would like to be the leader in making the world trade system more fair and more equitable to all participants.” …
Secretary Ross also challenged the panelists, including World Trade Organization Director-General Roberto Azevedo and Cargill Inc. Chief Executive Officer David MacLennan, to name a nation that’s less protectionist than the U.S.
He got no responses.
Wolverine Ross then cited a study of more than 20 products that showed China had higher tariffs on all but two items on the list, and Europe all but four.
“Before we get into sticks and stones about free trade we ought to first talk about, is there really free trade or is it a unicorn in the garden,” said Ross. {{{ZING}}} Again, no response from the panel. Despite the tariffs Trump imposed this week on solar panels and washing machines, China is hoping for a “bumper year” for new trade deals, according to China’s own Commerce Ministry.
All trade and economic wonks can join me in watching the full panel discussion in this next video. If you have time, watch it all. Wilburine was pulling no punches, and he deconstructed the ridiculous arguments brilliantly. At 14:50 you can hear a pin drop in the room to Ross’s correcting the record. Again, around 17:30 Ross bears his teeth:
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Elizabeth I Two-Tier Monetary System
Armstrong Economics Blog/Armstrong Economics 101
Re-Posted Jan 24, 2018 by Martin Armstrong
QUESTION: You have mentioned that the US maintained a two-tier monetary system with trade dollars during the 19th century. Did Britain ever do the same or was the fact that Britain was the financial capital so they were exempt?
Thank you for the help and education.
DL
ANSWER: When Elizabeth I (1558-1603) was on the throne, Spain was the financial capital. Therefore, we do see an attempt to employ a two-tier monetary system in England at that time. Elizabeth issued four denominations of Eight, Four, Two and One silver Testern as they were known. They were also called “Portcullis Money”, This was an attempt at producing a trade coinage sponsored by the newly formed East India Company to be used in overseas trade principally in the Far East. However, the competition against Spain and the Spanish Eight Reales (dollars) and its fractions was far too great. Eventually, the coinage did not succeed and thus the surviving coins are a rarity today. The surviving coins are most likely those that were retained in London as a novelty.
The abbreviated Latin legends translate as on the obverse “Elizabeth by the Grace of God, Queen of England France and Ireland; and on the reverse “I have made God my Helper” a Psalm from the Bible.
Vertical Market are the Most Difficult to Trade Even With 30 Years Experience
Armstrong Economics Blog/Training Tools
Re-Posted Jan 24, 2018 by Martin Armstrong
COMMENT: Dear Mr. Armstrong,
I want to thank you for the great advice some months back, “Do not short this market”, I took your advice. I day trade, and other experienced Traders, with over 30 years experience, recommended I shorting the DOW, Swing Trades, I did not short the markets. Their positions were eventually stopped out with big losses.
Thanks again
A. (from London)
REPLY: Keep in mind that even 30 years of trading experience does not stack up to the type of market we are involved in. VERTICAL MARKETS are different animals altogether. We are in the DENIAL STAGE and that means the market presses higher without a major bullish attitude. What will eventually happen is the more the Dow presses higher, we will reach that major line and when crossed, people will just throw in the towel and then say it will NEVER stop.
I restate that position once again – DO NOT SHORT THIS MARKET. You Must Wait for Socrates to give the signal. It picked the high in Bitcoin. It can do things even with the historical data because it is forecasting the entire world and everything has its place.
Can We Stop the Government Borrowing & Just Print Without Inflation?
Armstrong Economics Blog/Economics
Re-Posted Jan 24, 2018 by Martin Armstrong
The conservatives are going nuts about raising the debt ceiling as if this really matters. They claim: “The United States is effectively bankrupt, but that doesn’t matter to the GOP. Once evangelists of fiscal responsibility and scourges of deficit spending, Republicans today glory in spilling red ink. The national debt is now $20.6 trillion, greater than the annual GDP of about $19.5 trillion. Alas, with Republicans at the helm, deficits are set to continue racing upwards, apparently without end.”
What they fail completely to grasp here is until the system is completely revamped and we adopt the way the Roman Empire was funded from 280BC to 68AD, just creating the money to fund the government instead of borrowing it, there is no hope in solving this issue. In a recession, Keynes argued borrowing can be beneficial in creating economic stimulus and shortening the recession. Governments used that statement to then perpetually borrow year after year.
In 1940 a Cadillac sold for $1675. Currently, the low-end Cadillac is $35,000. This is almost 21 times the 1940 price level. The US national debt was $51 billion before the war and it is now $20 trillion. The debt has risen 392% compared to 20.89% for a Cadillac. The minimum wage in 1940 was 30 cents per hour. Today, the minimum wage is $10.10 per hour in 2018, which is a rise of 33.6%. However, if we look at collectibles, the famous 1804 silver dollar sold for $30,000 around 1940. In 1999, one sold for $4.14 million. Here we had an advance of 138%.
Then there was the Peter Paul Rubens which just sold for $58 million in 2016. The owners had tried to sell during the Great Depression. Nobody was interested. They then lent to a monastery where it hung in a hallway for 20 years. Other than that exception, nothing has advanced in proportion to the national debt. Therefore, the idea that increasing the money supply will automatically result in proportional inflation cannot be proven by any means of a statistical study. It is a nice theory, but it has never been proven to work. Hence, 10 years nearly of ECM quantitative easing failed to reverse the deflation.
If we had simply created the money instead of borrowing it, the national debt would be less than 50% of what it is today. The government borrowing competes with the private sector reducing economic growth and creating a bid for money that raises interest rates for the average person. Inflation did not go crazy in Rome until about 250AD onward.
The theory that it is less inflationary to borrow than create meant something when government debt was not collateral for loans. You could not borrow against TBills or bonds before 1971. Ever since borrowing is more inflationary because we then have to pay interest to keep it rolling when we have no intention of paying it off. The entire system will go crazy and as interest rates rise, the debt will explode.
Debt today is simply money that pays interest.
Alaska Hit by 7.9 Earthquake – The Start of a more Active Period lies Ahead
Armstrong Economics Blog/Nature
Re-Posted Jan 23, 2018 by Martin Armstrong
A 7.9 earthquake just struck off the coast of Alaska. There have been 12 major earthquakes greater than 7.0 since 1906. The 1964 earthquake was one of the biggest ever in North America measuring 9.2. The real significance of this event today is the fact that the Ring of Fire in the Pacific has 10 volcanoes now erupting all around. This is clearly from a cyclical standpoint rising in volatility to put this in market terms.
The other significant factor is this spans the course of 112 years which is also half the cycle duration of a 224-year wave that led to the discovery of the 8.6 year Economic Confidence Model. We seem to be following the Pi cycle in nature as well. The disturbing fact here is the activity is rising around the Pacific Rim.
We should now expect the volatility to rise. After the 1964 earthquake, 1965 became an extremely active year with 18 magnitude 7.0+ events. Two of these were above magnitude 8 and struck within 10 days of each other.
So grab on to something if you live on the edge of the Pacific Ring of Fire
President Trump and USTR Lighthizer Levy Tariffs on China (Solar Cells) and South Korea (Samsung Washing Machines)…
President Trump and U.S. Trade Representative Robert Lighthizer followed through on the trade commission study from last year showing evidence of dumping in the U.S. market. Samsung anticipated this final outcome and is almost finished with their plans to manufacture washing machines in South Carolina.
Washington, DC – U.S. Trade Representative Robert Lighthizer announced today that President Trump has approved recommendations to impose safeguard tariffs on imported large residential washing machines and imported solar cells and modules.
USTR made the recommendations to the President based on consultations with the interagency Trade Policy Committee (TPC) in response to findings by the independent, bipartisan U.S. International Trade Commission (ITC) that increased foreign imports of washers and solar cells and modules are a substantial cause of serious injury to domestic manufacturers.
“These cases were filed by American businesses and thoroughly litigated at the International Trade Commission over a period of several months,” said Ambassador Lighthizer. “The ITC found that U.S. producers had been seriously injured by imports and made several recommendations to the President. Upon receiving these recommendations, my staff and I conducted an exhaustive process which included opportunities to brief in person and through public comments, public hearings, and meetings with senior representatives.
Based on this information, the Trade Policy Committee developed recommendations, which the President has accepted. The President’s action makes clear again that the Trump Administration will always defend American workers, farmers, ranchers, and businesses in this regard.”
For imports of large residential washers, the President approved applying a safeguard tariff-rate quota for three years with the following terms (read more)
Suniva, SolarWorld and Whirlpool were helped by a 1974 trade law that lets companies seek trade protection if they can show damage from a rise in imports. Prior administrations’ stopped using the law in the mid 1990’s, President Trump reconstituted the process in 2017 as part of his overall overall trade-plan.
Up to certain levels, imports of solar cells will be exempt from the tariff, while the first 1.2 million imported large washing machines will get a lower tariff, peaking at 20 percent.
Congress has no authority to change or veto Trump’s decision. Countries affected by the decision can appeal to the World Trade Organization. The U.S. Chamber of Commerce and their purchased DC politicians are apoplectic:
Ben Sasse, R-Neb., said Republicans need to understand that tariffs are a tax on consumers. “Moms and dads shopping on a budget for a new washing machine will pay for this — not big companies,” Sasse said in a statement.
Quantity Theory of Money (QTM) & Its Failure
Armstrong Economics Blog/Economics
Re-Posted Jan 23, 2018 by Martin Armstrong
QUESTION: I am most interested in your revisionist view of QTM. You debunk QTM frequently within broader topic discussions, but I’d love for you to address QTM by itself in a historical context. Perhaps starting with the Austrian darling, Henry Thornton, and his “An enquiry into the nature and effects of the paper credit of Great Britain” (1802).
Separately, are you aware of the work of De Grauwe/Polan’s “Is inflation always and everywhere a monetary phenomenon” published in the Scandinavian Journal of Economics (2005)? If not, the paper’s summary regarding QTM states that the correlation between money supply and prices is not proportional and predisposes a stable velocity of money. The authors find a stronger QTM correlation and inflation in countries with high inflation extant. In lower inflation countries, such as the U.S., the correlation is less proportional.
When I was an economics student in the 70s we were taught two holy grails of econ: Keynesianism and Monetarism. Since you debunk both theories, I’d like to hear why.
Thanks,
TGM
ANSWER: I go into this in great detail in the How to Trade a Vertical Market. This is not a topic for a blog post lacking the space. To shorten the response as much as possible, both Friedman and Keynes were based upon a system that was purely in theory. The government only took part of Keynes’ suggestion to increase spending even into a deficit to stimulate demand. He also never advocated perpetual spending indefinitely. Keynes also advocated lowering taxes to stimulate. Few Presidents have ever done that: JFK, Reagan, and now Trump is attempting it.
Milton argued that the Fed was following austerity and raised rates to support the dollar during the 1931 Sovereign Debt Crisis. As Friedman and Schwarz wrote, “The Federal Reserve System reacted vigorously and promptly to the external drain. . . . On October 9 [1931], the Reserve Bank of New York raised its rediscount rate to 2-1/2 per cent, and on October 16, to 3-1/2 per cent–the sharpest rise within so brief a period in the whole history of the System, before or since (p. 317).”
Milton’s premise was that the Fed was doing what Germany is doing today. They were trying to support the currency to retain confidence in the bond market rather than stimulating the economy. In theory, Milton makes sense that one should expect higher inflation if the money supply were expanded instead of contracted. There is a lot of assumptions in that statement that simply do not hold up with time.
It is by no means a one-dimensional economy. This is global and we are all connected. The overlooked aspect here is the size of government has drastically changed from the time Keynes lived and Milton published his book. The size of government has grown to consume nearly 40% of GDP on average. It is no longer the incidental observer. It can no longer raise and lower interest rates to control demand when the government is the lion share of that demand and competes against the private sector. Volcker raised interest rates into 1981 to fight inflation and succeeded in costing the government vast amounts of interest thereafter. Raising rates to curb demand may stop the private sector, but it has no influence upon government. You can not stop a Ponzi Scheme once you begin.
In Europe, increasing the money supply has had ZERO inflationary impact and has not stimulated the economy in the least. There is no one-to-one relationship. It is far more complex and it becomes a balancing act. They have been sterilizing any impact of increasing the money supply by raising taxes. The monetary increase is only coming from buying government bonds. It is not supporting the private sector but instead, it has subsidized the government sector.
Even our studies of interest rates have revealed the same outcome. There is no one-to-one relationship between raising interest rates and stopping inflation or asset inflation. The stock market has NEVER peaked with the same level of interest rates twice in history. It boils down to the simple realization that people respond to the NET affect and not to theory. If you believed t6he stock market will double in one year, you will pay 20% interest. If you do not think the stock market will rally 5%, you will not pay 3%.
I have identified inflation unfolds from three primary sources. First, there can be asset inflation that is not a general inflation experience through the entire economy. Right down we see the Dow Jones has risen from the 6000 level in 2009 to 23000. That has not been matched by inflation is prices or wages.
Then there is the currency inflation. The decline in a currency will result in a corresponding rise in prices of imported goods. This was what we saw with OPEC during the 1970s and the rise in the dollar from 1980 into 1985 all-time high correspondingly produce deflation.
Then we have demand inflation. This is taking place right now in butter in Europe as prices are up 300% because of shortages.
None of these three types of inflation are created by monetary policy and they cannot be altered by trying to artificially control demand by government. The butter rally in Europe is because they maintain high quotas until 2015 when they were reformed since it produced a glut. When removed, prices fell and production collapsed. Not there is a shortage and prices have soared. This is made worse by government interference. We can see demand rise in anything caused by a shortage in that product and again this is not monetary driven.
It comes down to a complex formula driven by CONFIDENCE. People are hoarding cash even though the quantity has increased in theory so the velocity of money has been declining. The higher the tax rate, the lower the economic growth as people hoard money (save) and that produces the decline in the velocity of money.
Lowering interest rates DOES NOTHING to stimulate the economy when the banks do not lend anyway and would prefer to park money at the Fed in excess reserves which are sterilizing and the idea of quantitative easing.
If the QTM theory worked, then the central banks’ stimulation QE should have worked. It failed. There is a lot more to this than a simple one-to-one relationship.
In the How to Trade a Vertical Market, I have gone into ancient examples as well. I have shown that the QTM did not hold up even in ancient times when there was no central bank. It is far more complex a subject for just a simple blog post.























